Naomi Klein’s “The Shock Doctrine” and the Crisis of Capitalism

It has been three years since Naomi Klein’s book, “The Shock Doctrine – The Rise of Disaster Capitalism” was published. Since that time, capitalism’s economic crisis has metastasized, and part of Klein’s analysis has proven extremely useful in understanding much of the response of the capitalist politicians. Another part of her analysis has also been shown to be faulty (at best).

CIA’s Mind Control Experiments

Klein opens her book with a brilliant analogy to a series of mind control experiments organized by the US’s CIA. The thesis of these experiments was that one could basically erase an individual’s personality, thereby leaving a blank slate upon which anything the experimenter wished could be written. Leaving aside the question of whether such psychologists and their handlers – the CIA – could be trusted to create a new human being from scratch, these inhuman experiments showed that far from creating a blank slate, what they created was an immensely scarred and hurting human being, one who could never fully recover from all the pain – physical and psychological – that they underwent.

This school of psychology had something in common with the thinking of the neo liberals being led by Milton Friedman at the University of Chicago. As he put it, “only a crisis – real or perceived – produces real change.” (Klein p.6) The change Friedman is talking about is the enforced introduction of the “free” market, which he claims is always in natural balance, a balance that is distorted by any sort of restriction such as any measure of state ownership, tariffs, high taxes, social welfare programs, etc. Presumably, labor unions themselves are also another such restriction of the natural balance of capitalism.

The period of the post war economic upswing was not a good time for such ideas. On the one hand, the upswing itself left room for concessions to the working class, one whose radical past was more present in the memory of millions of workers. Then there was the existence of the Soviet Union, which exerted a pressure on world capitalism. Finally, there was the colonial revolution and its counter part in the US – the revolt of black people against racism.

Military Coups

For all these reasons, the elimination of many concessions to workers was not possible through normal “democratic” means during this period. Thus it was that the first great opportunity came after the military coup led by General Pinochet of Chile against the left social democratic presidency of Salvador Allende in 1973. University of Chicago Friedman’s “Chicago Boys” were central to Pinochet’s economic plans.

In 1975, after Pinochet had consolidated himself in power, there was a 27% cut in public spending. State owned enterprises were sold off and protections for domestic industries were eliminated. The result of this and other such measures was a massive contraction in the Chilean economy, with thousands of companies going under and close to 200,000 workers in the industrial sector alone losing their jobs by 1983. The results for the average Chilean working class family were disastrous. As Klein writes: “Roughly 74 percent of (the income of a family living on a Pinochet prescribed ‘living wage’) went simply to buying bread…. By comparison, under Allende, bread, milk and bus fare took up 17 percent of a public employee’s salary.”

The claimed intent of these steps was to cut public debt and establish the Chilean economy on a healthy basis. Far from this, by 1982 its debt had exploded and inflation skyrocketed, while unemployment hit some 30 percent. As Klein explains: “The main cause was that the piranhas, the Enron-style financial houses that the Chicago boys had freed from all regulation, had bought up the country’s assets on borrowed money and run up an enormous debt of $14 billion.”

The looming total collapse of the Chilean economy led Pinochet to renationalize companies – exactly what he and his economic advisors had opposed. This fact shows what the real goals of the Chicago Boys and other advocates of the “free” market really are: redistribution of the wealth in society upwards. This was the end result of their policies in Chile. The same was the case in the Argentine military regime that took power two years after Pinochet did in Chile.

Repression Necessary

As Klein so graphically explains in her book, some sort of “shock” is necessary for such a redistribution. In the cases of Chile and Argentina, the shock took the form of a brutal police state. Tens of thousands of people were murdered or disappeared (the same thing). Many more were imprisoned and tortured. The regimes took care to ensure that this was generally known, in order to cow the rest of the population. As a Klein quotes a member of the Argentine military regime: “In 1955 we believed that the problem was (Juan) Perón, so we took him out, but by 1976 we already knew that the problem was the working class.” They couldn’t “take out” the entire working class, but they did their best.

Various human rights groups, including Amnesty International, investigated these crimes. As Klein points out, however, these groups all refused to deal with a fundamental fact: These crimes were carried out for an economic purpose – to carry through a “shock therapy” economic policy. Also involved in such “investigations” was the Ford Foundation, while Ford Motor Company profited from this same repression by not having to combat an organized working class in those two countries. Naturally, the Ford Foundation failed to point out this central fact. The Nobel Prize committee was particularly blatant in its role. In 1976 it awarded Milton Friedman the prize for economics – after he and his cohorts had been so involved in these criminal regimes. The next year, it awarded Amnesty International an award for its work “investigating” human rights abuses in Argentina and Chile. The message clearly was that human rights abuse has nothing to do with economic attacks.

In the years that followed, the Chicago Boys and their ilk were involved in a series of such economic attacks around the world. This included Russia in the coup that Yeltsin pulled off, after which similar economic measures were instituted. The results were similar, and in the years that followed, Russia was one of the few countries in history which experienced a declining life expectancy in a time other than a (military) war time. A similar approach was carried out in Poland under the new “Solidarity” Regime. A particularly tragic case was that of South Africa, whose black working class had fought a decades-long struggle against the apartheid system – a struggle that had earned them the highest esteem of workers and youth throughout the world. Yet after the new regime came into office, their finance minister secretly worked out the same “free” market approach as that in Chile, Poland, etc. He presented it to the regime there on a “take it or leave it” basis. The results were similar to those in other countries where such measures had been taken. Despite the collapse of the white racist regime, poverty and economic inequality actually went up in the years that followed.

Iraq War – “Shock and Awe”

The second Iraq war was probably the best revelation of what the shock doctrine really meant. While Saddam Hussein was a corrupt and savage dictator, he had also instituted some populist measures, including nationalization of important industries as well as some social welfare programs. Klein reveals that part of the intent of those who planned the second war was to erase all of this and establish Iraq as a model “free” market economy. Just as for the individual, the entire memory must be erased, so it was for the collective memory of Iraqi society – no easy task in the center for the oldest civilization on the planet.

The first step was a total blackout of Baghdad through the destruction of its electrical plant and then the destruction of its telephone system so that its residents could not communicate with each other. Klein rightly compares this with the individual sensory deprivation techniques used by psychologists in the CIA’s earlier experiments. This was the fist step in the “shock and awe” bombing during which over 30,000 bombs were dropped in under two months (3/20-5/2 of 2003) along with some 20,000 precision guided missiles.

The destruction and mass looting of museums holding artifacts of Iraqi society’s precursors should be seen in this light – as part of the attempt to erase the collective memory. US troops stood passively by as this looting was under way. Paul Bremer, head of the US efforts there, in fact said he saw this looting as part of the “privatization” that was necessary in Iraq and said he thought it was “just fine.” These artifacts inevitably ended up in the hands of rich private art collectors around the world. Thus, the looting also epitomized the entire process of privatization – the transfer of wealth from the public sector to the wealthy few.

During the years of occupation that followed the invasion, the US regime brought in one multi-national corporation after another to “rebuild” as well as maintain Iraq while state functions were privatized or eliminated altogether. Thousands of Iraqi companies were bankrupted, and since the multi-nationals in general did not hire Iraqi workers, this resulted in hundreds of thousands of Iraqis losing their jobs. Unemployed with no means of providing for their families, many of these joined the insurgent groups as a result.

War Privatized

Not only was the “free” market, privatization prescription imposed on Iraqi society, but this was also instituted on a mass scale for the US war effort. Klein’s statistics tell the story: During the first Gulf War, there was one private sector worker involved in the war effort for every 100 soldiers. At the start of the US invasion, that figure jumped to one for every ten and a few later it was one for every three.

This had nothing to do with instituting a “free” market – neither in Iraqi society nor in the US war effort. In most cases, companies were simply handed no-bid, cost-plus contracts which gave them every incentive to maximize their costs. Corruption and outright fraud have become rampant. This is what the “free” market means in real life.

In one sense, however, the US regime has succeeded in making Iraq the poster child for the “free” market – if by that one means that the near-total free market is in reality the breakdown of the bonds that hold a society together.

Hurricane Katrina

The free marketeers do not confine themselves to human-caused or induced shocks – mass murder, etc. Like hungry hyenas, they are ever on the prowl for other opportunities, including shocks caused by natural disasters. Thus it was that after Hurricane Katrina (2005). After that crisis, the free marketeers moved in to privatize New Orleans’ public school system as well as to eliminate public housing and in other ways swell the coffers of private business.

Overall, Klein’s book is an excellent resource in proving that the “free” market is in reality antithetical to the democracy that its proponents so often like to champion in words. Over and over, she shows that its reality also has nothing to do with either efficiency or even with genuine capitalist competition. It’s all about which giant company has what connections that enable it to loot the public treasury, while wealth is being redistributed upwards. For this, Naomi Klein has performed a great service with her well-researched book.

Keynesianism and Alternative?

However, the real question is what is the alternative to the “free” market prescription, and why has a fight for the alternative not developed on a mass scale. In other words, what can be done about it? Here, Klein’s book falls well short, starting with her explanation of the period that led up to the present domination of the “free” marketeers.

In the industrialized capitalist world, Klein fails to adequately discuss the end of the post WW II upswing. She fails to mention, for instance, the period of “stagflation” in the US economy – that time in the early ‘70s when the US economy was nearly stagnant while inflation was up over 10% and threatening to go much higher. (Neither the term “stagflation”, nor the U.S. president associated with that period – Jimmy Carter – appear in the index of her book.) She fails to understand that Keynesianism only succeeded due to the peculiar conditions of the post war period – a period of massive rebuilding of Western Europe, one in which the US economy had hardly any rivals in the capitalist world. It was these conditions that allowed for this unparalleled time of relative lack of economic crises.

“Developmentalism”

In the underdeveloped world, Klein lauds the “developmentalist” approach as “proof that… the class divide between the First and the Third World could actually be closed.” Leaving aside the fact that she implies that this was a “class” divide, as if workers in the “First” world don’t have a common interest with workers in the “Third” world, this statement ignores the shortcomings of developmentalism – its inability to overcome the inherent contradictions of capitalism. On the one hand, this approach left capitalists in the underdeveloped world with little incentive to invest and modernize since they did not face global competition. (This writer remembers seeing “new” machinery in a factory in Mexico in the 1990s that was just the cast-off of a US plant – machinery that it had discarded for newer, truly modern technology.) Klein also forgets the Latin American debt crisis of the ‘80s that hit so many of those countries so hard.

Capitalism’s Laws of Motion

What Klein seems unaware of are some of the laws of motion of capitalism itself. On the one hand, there is the tendency towards overproduction due to the fact that workers cannot buy back all they produce. Keynesianism was an attempt to get around this by government spending. But ultimately, this spending was based on debt, meaning an increase in the money supply, which drove inflation forward especially in the US.

In the underdeveloped world, capitalism will never accomplish what it did in the industrialized world. The capitalist class there is too linked up with the old, semi-feudal landed aristocracy as well as with world imperialism. In addition, having come onto the scene too late, they will never be able to compete globally with the more advanced capitalist societies. Developmentalism was an attempt to shield these underdeveloped societies from these laws, and they partially succeeded… for a time. Eventually, however, just as in the industrialized world, the laws of capitalist development caught up with them. In addition to the failure to modernize, at least in Latin America a debt crisis struck in the ‘80s.

Clearly, runaway inflation in many countries of the underdeveloped world, and an emerging threat of the same in the early ‘70s at least in the US was a huge factor – one which Klein either misses (as far as the US) or fails to adequately discuss as far as the underdeveloped world. Part of her failure relates to her failure to understand the fundamental cause of inflation itself. This is an expansion of the money supply of any economy beyond the expansion of production. It was exactly this expansion of the money supply that Keynesianism produced, and it was exactly this that was a major factor in the increased influence of the neo-liberal “free” marketeers.

Role of Leadership of Workers’ Organizations

Politically, Klein fails to appreciate the role of the leadership of the workers’ organizations. In both the developed and the underdeveloped capitalist world, in the main they accept capitalism as the starting and the end point. Therefore, they are unable to develop a strategy to counter what has become a necessity for capitalism if it is to produce profits. On the one hand, there is the example of South Africa: With the collapse of Stalinism, practically the entire leadership of the black working class, from Mandela on down, took the position that no alternative to capitalism was possible. Therefore, they could not provide an alternative to the strategy of seeking to attract foreign capital. But the only way to attract capital is to keep wages and taxes on corporations relatively low and to keep labor “peace” assured. Thus, an alternative to the present polices was not presented on a mass scale.

In the industrialized capitalist world a similar process occurred. All the social democratic parties of Western Europe as well as Britain’s Labour Party shifted to the right, understanding that as long as capital could freely flow across borders, investment must be made to be attractive in “their” countries, meaning steady reduction in social spending. As for the US, the union leadership continued to cling to the capitalist-controlled Democratic Party. In the industrial arena it accepted all the union-busting laws and court rulings and as a result was forced to accept that strikes could not win in most cases. It was also made incapable of really linking up with workers in the underdeveloped world by its support for US imperialism internationally.

The shift away from Keynesianism and “developmentalism” was not just some free choice by the capitalist class; it was the inevitable result of the changed world situation. This is what Klein fails to see or explain. As a result, her book, while providing much useful information as well as insight into the introduction and inner politics of the “free” market, cannot provide a real way forward for the world workers’ movement. For this, a Marxist analysis of the laws of motion of capitalism is necessary as well as an understanding of how to link the struggles of today with the necessity that history imposes on the working class.

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